Infosys’ management reiterated its medium-to-long-term target of achieving industry-leading revenue growth (15-18%) and margins (25-28%).
It also retained its near-term margin guidance of 24-26%. The company plans to achieve this through the “renew-new-education” approach, i.e. renew existing capabilities, build new ones and educate employees on new methodologies.
There was no incremental change in the strategy highlighted in the post-results conference call and hence we remain sellers. We argue that whilst the turnaround appears to be priced in (just 18% valuation discount to TCS despite lower revenue growth), the odds are significantly against this (low exposure to fast growing segments, weakened market positioning in key segments, same strategy as Infosys 3.0 which failed in the past).
Sikka reiterated that Infosys aims to achieve industry-leading growth and margins by FY17. Although the company said that it would enumerate the outlays required for its new initiatives during April 2015, it retained margin guidance of 24-26%.
Amongst the verticals, continued weakness was seen in the retail, telecom and life sciences during the quarter. Further, due to decline in global commodity prices, energy and utilities and mining have been soft.
The company said that early indications suggest that client budgets for 2015 will be the same or marginally lower as the current year.
By Ambit Capital